ECOS3031 HETERODOX PERSPECTIVES ON MACROECONOMICS

PROGRAMME AND READING GUIDE

The unit provides an introduction to heterodox approaches to macroeconomics. This entails a fundamental departure from mainstream (i.e. marginalist) theoretical foundations. Lectures begin with an historical overview of the development of modern macroeconomics as well as a discussion of the implications of a modern classical/Sraffian perpectives for the theory of value and distribution, including the explanation of the real wage and the rate of interest. The latter analysis necessarily informs subsequent discussion of the celebrated capital-theoretic critique of traditional approaches to the theory of output and employment. Lectures proceed to alternative (demand-led) perspectives on growth, including discussion of modern Kaleckian and multi-commodity models, as well as heterodox views on macroeconomic policy.

There are two hours of lectures each week and PLUS an additional hour each week which will be used as a question and answer session and which follows immediately after the lecture. Questions relating to lecture material will also be posted on Canvas at the end of each major topic. Students are advised to attempt these questions as a means of coming to grips with the course material.

PLEASE NOTE: Your grade for this unit will be based on your understanding of lecture material and that understanding requires a serious commitment to attendance at lectures as well as doing the required reading.

As later year students, I expect nothing less than regular attendance at classes, whether this attendance is in person or remote via Zoom.

LECTURE TOPICS 

Topic 1: Background: two traditions in the theory of output

• Traditional (Wicksellian) macroeconomics, capital theory and the theory of the rate of interest
• Keynes’s challenge and the principle of effective demand
• Development of macroeconomics since the General Theory

Reading:

Garegnani P. (1990), “Quantity of capital”, in Eatwell J., Milgate M. and Newman P. (eds), The New Palgrave: Capital Theory, UK: Palgrave Macmillan, pp. 1 – 11.

P. Garegnani (1978-79), ‘Notes on consumption, investment and effective demand’, Cambridge Journal of Economics, Part I Vol. 2, No. 4, December; Part II, Vol.3, No. 1, March.

Blanchard O. (2008), ‘Neoclassical synthesis’, in Durlauf S. N. and Blume L. (eds) 2nd Edition The New Palgrave Dictionary of Economics, 2nd Edition, Basingstoke: Palgrave Macmillan (hereafter NP2).

Mankiw N.G. (1990), ‘A Quick Refresher Course in Macroeconomics’, Journal of Economic Literature, Vol. 28, Issue 4, December, 1645-1660.

Kurz H. D. (2010), ‘On the dismal state of a dismal science?’, Investigación Económica, Vol. 69, No. 274 (octubre-diciembre de 2010), pp. 17-41 (https://www.jstor.org/stable/42779598).

 Topic 2: Heterodox foundations: some building blocks for subsequent discussion

• Relative prices and distribution in a simplified multi-commodity setting
• Choice of technique

Reading:

Pasinetti, L.L. (1977), Lectures in the Theory of Production. London: Macmillan, Ch.’s 2 & 3.

Garegnani, P. (1987), "Surplus approach to value and distribution". In Eatwell J., Milgate M. and Newman P. (eds.), The New Palgrave: A Dictionary of Economics. London: Macmillan (hereafter NP1), Vol. IV, pp. 560-563.

Eatwell J. (1987), “Competition: classical conceptions”. NP1, Vol. I pp. 537 – 540.

Topic 3: Capital-theoretic issues and conventional macroeconomic theory

• The aggregate production function
• The aggregation of capital and the theory of distribution
• Capital theory debates and the traditional theory of output
• Capital theory debates and new Keynesian variations on traditional theory

Reading:

Garegnani, P. (1970), "Heterogeneous Capital, the Production Function and the Theory of Distribution", Review of Economic Studies, 37, pp. 407-416.

Shaikh A. (1974), “Laws of Production and Laws of Algebra: The Humbug Production Function”, The Review of Economics and Statistics, Vol. 56, No. 1, (Feb., 1974), pp. 115-120. 

Garegnani P. (1990), “Quantity of capital”, in Eatwell J., Milgate M. and Newman P. (eds), The New Palgrave: Capital Theory, Norton & Co, pp. 1 – 11.

Kurz H.D. (1987), "Capital theory: debates". NP, Vol. I, pp. 357-363. ( A more in-depth version of this Palgrave entry can be found in Kurz and Salvadori, Theory of Production : A Long-Period Analysis. Cambridge: Cambridge University Press,Ch. 14, pp. 427-455).

Petri F. (2004), General Equilibrium, Capital and Macroeconomics: A Key to Recent Controversies in Equilibrium Theory, Cheltenham: Edward Elgar, Ch. 7, pp. 259-268.

Petri F. (2015), ‘Neglected Implications of Neoclassical Capital-Labour Substitution for Investment Theory: Another Criticism of Say’s Law’, Review of Political Economy, vol. 27, No. 3, pp 308-340.

White G. (2015), ‘The new Keynesian view of aggregate demand: some reflections from a classical-Sraffian standpoint’, Cambridge Journal of Economics, Vol 39, No.3, May, pp. 826-830.

Fratini S.M. (2018), “On the Second Stage of the Cambridge Capital Controversy”, Centro Sraffa Working Papers, No. 30, April.

Topic 4: Demand-constrained approaches to output and the theory of growth

• Kalecki’s ‘version’ of the principle of effective demand and the trade cycle
• Cambridge – post-Keynesian views of distribution and growth
• Kalecki on long-run growth
• Modern Kaleckian explanations of growth
• Normal versus steady state capacity utilization

Reading:

Blecker R.A. (2002), ‘Distribution, demand and growth in neo-Kaleckian macro-models’, in Setterfield M. (ed), The economics of demand-led growth : challenging the supply-side vision of the long run. Cheltenham : Edward Elgar, pp. 129-138.

Cesaratto S. (2015), “Neo-Kaleckian and Sraffian Controversies on the Theory of Accumulation”, Review of Political Economy, Vol.27, No.2, Sections 2 - 4.

Topic 5: Modern classical approaches to value and distribution and demand-led growth

• Sraffa prices, accumulation and “normal” utilization
• The “super-multiplier” approach
• “Sraffian” versus Kaleckian approaches to demand-led growth
• Steady state analysis and demand-led growth

Reading:

Vianello F. (1985), “The Pace of Accumulation”, Political Economy: Studies in the Surplus Approach, Vol.1, No.1.

Cesaratto S., Serrano F. and Stirati A., (2003), ‘Technical Change, Effective Demand and Employment’, Review of Political Economy, Vol. 15, No.1, pp. 33 - 52.

White G. (1989), “Normal Prices and the Theory of Output: Some Significant Implications of Recent Debate ”, Political Economy: Studies in the Surplus Approach, Vol.5, No.2.

Cesaratto S. (2015), “Neo-Kaleckian and Sraffian Controversies”, op.cit., Sections 5 and 6.

Trezzini and Palumbo (2003), “Growth without Normal Capacity Utilization”, European Journal of the History of Economic Thought, Vol. 10, 109-135.

White G. (2006), “Demand-led growth and the classical/Sraffian approach to value and distribution: Are they compatible?” in Salvadori N. (ed), Economic Growth and Distribution: On the Nature and Cause of the Wealth of Nations, London: Edward Elgar.

Topic 6: Policy issues and heterodox perspectives on macroeconomics

• Heterodox macroeconomics and the labour market
• The role of the concept of potential output
• Secular insufficiency of demand without the negative natural rate of interest
• Monetary and fiscal policies from a heterodox perspective

Reading:

White G. (2010), “Labour, Commodities and the Labour Market: A Heterodox Perspective” The Economic and Labour Relations Review, Vol. 21 No. 1, pp. 89–104.

Palumbo A. (2015), ‘Studying Growth in the Modern Classical Approach: Theoretical and Empirical Implications for the Analysis of Potential Output’, Review of Political Economy, Vol. 27, No. 3, 282-307.

Di Bucchianico S. (2020), ‘Discussing secular stagnation: A case of freeing good ideas from theoretical constraints’, Structural Change and Economic Dynamics, Vol. 55, pp.288-297.

Girardi D., Meloni W. and Stirati A. (2020), ‘Reverse hysteresis? Persistent effects of autonomous demand expansions’, Cambridge Journal of Economics, Vol. 44, pp.835-869.

Marc Lavoie (2013), “The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique”, Journal of Economic Issues, Vol. 47, No. 1, 1-32.

Palley T. (2015), ‘Money, Fiscal Policy and Interest Rates: A Critique of Modern Monetary Theory’, Review of Political Economy, Vol. 27, No. 1, pp. 1 – 27.